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Working Paper
Payments-related intraday credit differentials and the emergence of a vehicle currency
The U.S. dollar serves as a vehicle currency or medium of exchange in the global foreign exchange markets. After reviewing some of the existing theories on vehicle currencies, the hypothesis put forth is that the dollar's role is linked to the relatively low cost of payments-related intraday credit available to payment system participants. Differences in the types of measures used by payment system operators to reduce settlement and systemic risk in the payment system give rise to liquidity differentials between currencies. ; After reviewing the types of intraday credit facilities extended to ...
Working Paper
Analysis of systemic risk in the payments system
This paper investigates systemic risk in multilateral netting payments systems. A four-period model is constructed to investigate the effects of random liquidity shocks. There are three different types of agents in this model: banks, the payments system operator, and the central bank. Banks pay one another via the payments system. The payments system operator sets the rules for participation. These include total asset requirements, collateral requirements and net debit caps. The central bank serves as a source of liquidity during a financial crisis. The model is constructed along the lines of ...
Journal Article
Why has stored value not caught on?
Why have general-purpose stored-value cards been unsuccessful in penetrating the U.S. market? Three necessary conditions for a payment instrument to be successful are discussed: consumers and merchants need to be convinced of its advantages over existing payment alternatives for at least some types of transactions; payment providers must convince consumers and merchants simultaneously of its benefits to achieve critical mass; and assure them that adequate safety and security measures have been implemented. This article discusses the credit card industry's success in meeting these necessary ...
Journal Article
Why invest in payment innovations?
In this paper, we provide a framework to study the creation and adoption of innovations by payment providers and processors. We identify several motivating factors for banks and nonbanks to invest in payment innovations. In addition, we discuss the evolutionary process of payment innovations from inception to commoditization recognizing that innovations differ in the time necessary to evolve from proprietary technology to commodization and some may never evolve completely. Finally, we consider a snapshot of payment innovations at different stages of development. We compare proprietary versus ...
Journal Article
Economics of payment cards: a status report
This article surveys the recent theoretical literature on payment cards (focusing on debit and credit cards) and studies this research's possible implications for the current public policy debate over payment card networks and the pricing of their services for both consumers and merchants.
Journal Article
Payment instrument choice: the case of prepaid cards
The costs and benefits to payment system participants can differ depending on which payment mechanism is used. The authors specifically explore the costs and benefits of prepaid card applications versus other payment instruments, such as cash, checks, and debit cards, for certain payment segments, including gift, payroll, and employer-initiated and government benefit programs.
Journal Article
Why do we use so many checks?
The authors identify underlying disincentives for payment system participants to migrate to electronic payments. Their analysis sheds light on why check usage remains higher in the United States relative to other industrialized countries when the real resource cost of processing payments may decrease by using electronic payment networks.
Journal Article
Electronic bill presentment and payment--is it just a click away?
This article addresses the following questions about electronic presentment and payment (EBPP) in the business-to-consumer marketplace: Why aren't electronically presented bills always paid electronically? And, if EBPP does aid in the migration to fully electronic end-to-end payment, what are the barriers to its adoption.